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<p><a name="faqhome" id="faqhome"></a>Practice Stock Trading Questions</p>
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  <u><a name="stock" title="stock" id="stock"></a>What is stock?</u><br />
  <span id="itxthook0w0">Stock</span> is a piece of ownership of a company. When a company needs to acquire  extra money to help grow the business, they can sell some or all of the  ownership of the company in the form of stocks. So if you were to buy  100% of a company's stock, you would own the whole company. If you own  enough stock you also have some decision-making power within the  company. Buying stock is a very popular form of investing. </div>
<p><u><a name="share" title="share" id="share"></a>What is a share?</u><br />
  A share is one individual piece of <a href="http://www.howthemarketworks.com/#stock">stock</a>. It represents a very small percentage of ownership of a company.</p>
<p><u><a name="dowjones" title="dowjones" id="dowjones"></a>What is the Dow Jones or the DJIA?</u><br />
  The Dow Jones Industrial Average (often referred to as the &quot;Dow&quot;) is an averaged number representing the values of 30 U.S. &quot;<a href="http://www.howthemarketworks.com/#bluechip">blue-chip</a>&quot;  stocks. The DJIA is the most well-known market indicator in the world  and was created in 1896 by Dow Jones &amp; Company, which is actually a  publicly-traded company (DJ) on the New York Stock Exchange (NYSE). They  produce many important business publications including The Wall Street  Journal, Barron's, and several stock indexes.</p>
<p><u><a name="nasdaq" title="nasdaq" id="nasdaq"></a>What is the Nasdaq?</u><br />
  The  NASDAQ refers to two different things. First is the largest electronic  stock market in the U.S. - the National Association of Securities  Dealers Automated Quotation System. Second is the popular stock index  called the NASDAQ Composite Index. It measures all domestic and  international stocks listed on The NASDAQ, which number over 3,000. It  was started in 1971 and is now one of the most important stock indexes.</p>
<p align="left"><u>What is the Big Board?</u><br />
  The Big Board is another name for the New York Stock Exchange.</p>
<p><u><a name="sandp500" title="sandp500" id="sandp500"></a>What is the S&amp;P 500?</u><br />
  The  S&amp;P 500 is a stock index published by Standard &amp; Poor's. It  measures 500 U.S. stocks that are supposed to be representative of the  overall stock market. It was created in 1957.</p>
<p><u><a name="stockprice" title="stockprice" id="stockprice"></a>What determines a stock's price?</u><br />
  There  are many factors that play into a stock's price. Overall, though, the  price is determined by investors' perceptions of what the stock is  worth.<br />
  Some of the biggest factors include:<br />
      How big and successful the company is (especially its earnings)<br />
      Recent company news<br />
      The state of the U.S. and world economies<br />
      Whether there is a bull or bear market<br />
      World events, whether good or bad<br />
  For more information, see our <a href="http://www.howthemarketworks.com/popular-topics/stock-price-factors.php">Stock Prices</a> page.</p>
<p><u><a name="bullmarket" title="bullmarket" id="bullmarket"></a>What is a bull market?</u><br />
  A  bull market occurs when stock prices are rising faster than their  historical averages. It can last months or even years. It is the  opposite of a <a href="http://www.howthemarketworks.com/#bearmarket">bear market</a>.</p>
<p><u><a name="bearmarket" title="bearmarket" id="bearmarket"></a>What is a bear market?</u><br />
  A  bear market occurs when stock prices are falling faster than their  historical averages. It can last months or even years. It is the  opposite of a <a href="http://www.howthemarketworks.com/#bullmarket">bull market</a>.</p>
<p><u><a name="marketcrash" title="marketcrash" id="marketcrash"></a>What is a market crash?</u><br />
  The  market has &quot;crashed&quot; when stock prices have dropped dramatically. One  of the worst crashes was Black Tuesday, which occurred on October 29,  1929 and led to the Great Depression.</p>
<p><u><a name="insider" title="insider" id="insider"></a>What is insider trading?</u><br />
  Insider <a href="http://www.howthemarketworks.com/#" id="itxthook1" rel="nofollow"><span id="itxthook1w0">trading</span><img id="itxthook1icon" src="http://images.intellitxt.com/ast/adTypes/mag-glass_10x10.gif" /></a> occurs (1) when an insider to a company, such as an officer or someone  who owns a large percentage of the company, trades the company's stock.  This is legal and acceptable, as long as that person is not trading  based upon non-public company information.<br />
  <br />
  Insider trading also  occurs (2) when anyone, including employees, trades using non-public  company information. This is considered illegal.</p>
<p><u><a name="getstarted" title="getstarted" id="getstarted"></a>How much money do I need to get started?</u><br />
  These  days, you can open an online account with a brokerage with as little as  $5. When you purchase stocks, your brokerage will generally charge you a  commission fee of $5-25, depending on the type of brokerage and type of  order you place.</p>
<p><u><a name="bidaskprice" title="bidaskprice" id="bidaskprice"></a>What is the Bid price? What is the Ask price?</u><br />
  When  you request a quote for a stock, you will receive the bid price and the  ask price. The bid price is the best (highest) price you might receive  if you sell your stock back to the market. The ask price is the best  (lowest) price you might receive if you buy stock from the market.</p>
<p>You are not guaranteed to get these prices because the market  fluctuates constantly and prices change quickly. Also, if you buy (or  sell) shares of a low-volume stock, you run the risk of affecting the  price due to excess demand (or supply).</p>
<p><u><a name="willbuy" title="willbuy" id="willbuy"></a>Will somebody always buy my stocks when I sell them?</u><br />
  No.  If you try to sell more shares than people are willing to buy or if  your price is unreasonable, it may take a long time for them to sell, if  at all. However, if you use market orders on medium or high volume  stocks you should not have any problems selling them immediately.</p>
<p><u><a name="daytrading" title="daytrading" id="daytrading"></a>What is day trading?</u><br />
  Day  trading is the process of buying and selling the same stock during one  day. Professional day traders commonly trade many times per day. <a href="http://www.howthemarketworks.com/popular-topics/day-trading.php">More Details</a>.</p>
<p><u><a name="marketopen" title="marketopen" id="marketopen"></a>When is the market open?</u><br />
  U.S. markets are usually open 9:30am-4:00pm Eastern time, except on holidays.</p>
<p><u><a name="returns" title="returns" id="returns"></a>How much return can I expect?</u><br />
  Historically,  the market has advanced roughly 10% per year. Of course this rate  fluctuates constantly. For instance, it may grow up 30% one year, then  fall 20% the next year.</p>
<p><u><a name="whichstocks" title="whichstocks" id="whichstocks"></a>How do I know which stocks to buy?</u><br />
  That is a great question. With over 8,000 different stocks to choose from, it can be overwhelming to pick some possible winners.</p>
<p>Many people simply buy stocks that are recommended to them by their  brokerages, their friends, or experts from TV, magazines, and  newspapers.<br />
  Some people buy stocks from companies they think are big,  stable, and successful. This may seem like a safe route, but there are  no guarantees.<br />
  Other people buy stocks based on rumors that the price will rise/fall sharply soon.<br />
  Many  experienced traders watch financial news on TV, read the relevant  newspaper stories, and investigate companies that are in the news. They  also use &quot;technical indicators,&quot; which are numbers or graphs which may  help indicate whether a stock will rise, fall, or stay the same.<br />
  A few people will randomly pick stock symbols by throwing a dart at a newspaper, for instance.</p>
<p><u><a name="mutualfund" title="mutualfund" id="mutualfund"></a>What is a mutual fund?</u><br />
  A  mutual fund is a fund created by an investment company which combines  money from many investors and invests it in a group of stocks, bonds, or  other investment vehicles. The investment company actively manages the  portfolio to meet a desired goal, such as long-term growth or steady  dividends. One major benefit is diversification. Many mutual funds also  charge a fee when someone buys or sells shares. </p>
<p>When someone buys shares of a mutual fund, they are not directly  buying shares of the underlying companies. Instead, they are entitled to  a proportional amount of the fund's profits, which are usually  distributed two or three times per year.</p>
<p><u><a name="nav" title="nav" id="nav"></a>What is a mutual fund's N.A.V.?</u><br />
  The Net Asset Value (NAV) is the current price of a <a href="http://www.howthemarketworks.com/#mutualfund">mutual fund</a>,  which is calculated at the end of each business day. It is the total  value of the fund's assets minus its liabilities and divided by the  total number of shares outstanding. It is similar to a stock's closing  price for the day.</p>
<p><u><a name="401k" title="401k" id="401k"></a>What is a 401(k) plan?</u><br />
  A  401(k) is a type of personal pension plan that is offered by many  employers. Employees contribute part of their salary (before taxes) and  employers commonly match part of the contribution. The bulk of the plan  is usually invested in <a href="http://www.howthemarketworks.com/#mutualfund">mutual funds</a>.</p>
<p><u><a name="ways" title="ways" id="ways"></a>What are the main ways to make money with stocks?</u><br />
  Buy Low, Sell High (traditional long trading)<br />
  Sell High, Buy Low (<a href="http://www.howthemarketworks.com/popular-topics/short-selling.php">short selling</a>)<br />
  <a href="http://www.howthemarketworks.com/education/stock-questions.php#dividend">Dividends</a><br />
  Options trading<br />
  Futures</p>
<p><u><a name="shortsell" title="shortsell" id="shortsell"></a>What is short selling?</u><br />
  Short  selling is the act of selling stock that you don't own at a high price  by borrowing it from a brokerage and then buying it back at a lower  price in the future. The hope is that the stock price will drop in value  and a profit can be made. This is an advanced technique that has strict  requirements and higher risks. <a href="http://www.howthemarketworks.com/popular-topics/short-selling.php">More Details</a>.</p>
<p><u><a name="dividend" title="dividend" id="dividend"></a>What is a dividend?</u><br />
  A  dividend is money that a company gives to its shareholders when it has  extra profit. Since the shareholders own the company, they deserve its  profits. However, sometimes companies want to use these profits to help  grow their business and decide not to distribute dividends, at least for  a while.</p>
<p><u><a name="peratio" title="peratio" id="peratio"></a>What is the P.E. ratio?</u><br />
  The  Price to Earnings ratio is simply the price of a company's stock  divided by its Earnings Per Share. It is often used as an indicator of  whether a stock is overpriced, underpriced, or on par. The PE ratio by  itself is not always enough to make a good determination but it can be  helpful to compare it with other companies in the same industry. The <a href="http://www.howthemarketworks.com/#nasdaq">NASDAQ</a>'s average P/E is about 35.</p>
<p><u><a name="stocksplit" title="stocksplit" id="stocksplit"></a>What is a stock split and a reverse stock split?</u><br />
  A stock split is an increase in the number of outstanding <a href="http://www.howthemarketworks.com/#share">shares</a> of a stock. The price of the stock is immediately adjusted so that the  total equity remains the same. For instance, if a $100/share stock  splits 2 for 1, there will be twice as many shares but they only be  worth $50 each now. This is usually done to make the stock more  affordable to the public.</p>
<p>A reverse stock split is a decrease in the number of shares. This is  usually done to raise the price per share to meet stock exchange  requirements or simply to look more &quot;healthy.&quot;</p>
<p><u><a name="ipo" title="ipo" id="ipo"></a>What is an IPO?</u><br />
  When a  company issues stock to the general public for the first time, it is  called an Initial Public Offering. The SEC has strict guidelines on how  this is carried out. The company can issue more stock in the future,  which is called a Secondary IPO.</p>
<p><u><a name="dca" title="dca" id="dca"></a>What is Dollar Cost Averaging?</u><br />
  DCA  is the act of buying the same dollar amount of a stock each month. This  allows you to buy more shares when the stock's price is low and fewer  shares when it is high. It can often be more successful than buying the  same number of shares each month. </p>
<p><u><a name="penny" title="penny" id="penny"></a>What is a penny stock?</u><br />
  Less than $1 (or $5 in some cases) per share. <a href="http://www.howthemarketworks.com/popular-topics/penny-stocks.php">More Details</a>.</p>
<p><u><a name="smallcap" title="smallcap" id="smallcap"></a>What is a small-cap stock? Mid-cap? Large-cap?</u><br />
  These terms refer to a company's market capitalization, which is the number of outstanding shares times the stock's price.</p>
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      <td width="90">Small cap:</td>
      <td width="415">$250 Million to $2 Billion, approximately</td>
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      <td width="90">Mid cap:</td>
      <td width="415">$2 Billion to $10 Billion, approximately</td>
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      <td width="90">Large cap:</td>
      <td width="415">$10 Billion and up, approximately</td>
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<p><u><a name="bluechip" title="bluechip" id="bluechip"></a>What is a Blue Chip stock?</u><br />
  It  is the stock of a large company that has a long history of stable  operation and solid stock performance. A great example is General  Electric.</p>
<p><u><a name="sec" title="sec" id="sec"></a>What is the SEC?</u><br />
  The  Securities and Exchange Commission (SEC) is the government agency  responsible for protecting investors by monitoring and regulating  brokers, dealers, and the stock and bond markets in the U.S. They also  make sure publicly-traded companies disclose the required business  details to the public.</p>
<p><u><a name="marginaccount" title="marginaccount" id="marginaccount"></a>What is a Margin Account?</u><br />
  A  margin account allows you to quickly and easily borrow money from your  brokerage to purchase additional shares. In other words, it provides  leverage for your account. It also allows you to do <a href="http://www.howthemarketworks.com/popular-topics/short-selling.php">short selling</a>. Of course interest is charged interest on any borrowed money and the SEC has very strict regulations on these accounts.</p>
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